May 08, 2018

Rachel Winkler of the Marion County Civil Sheriff’s Office recently circulated an email to the local foreclosure community of lawyers, investors and bidders about some immediate changes to the local sheriff’s sale rules and procedures. Since the Office wants to spread the word to future participants in the mortgage foreclosure sale process, consider this a public service announcement.

Below is a verbatim copy of her email, and I’ve provided links to the various .pdf’s and the home page:

Greetings Attorneys/Investors/Bidders,

We want to include all because the adjustments we are working on and toward affect all.

Some highlights of these adjustments to our process are:

Interest will now come from Attorneys; please consider including these on the added cost sheet.

Plaintiff Bid Forms; Treasurer’s Tax Clearance Forms; Removal Letters; Assignment of Judgment/Bids and Added Costs Sheets are due no later 3:00 p.m. two business days prior to the respective sale date.

Cost checks for User Fees, Sheriff’s fees and Publication Fees (including Sheriff’s File Number on checks) are also due and requested no later 3:00 p.m. two business days prior to the respective sale date.

Cost checks will now be cashed and applied as part of the Sheriff Sale process. Please be sure to consider these costs as part of the minimum bid amount and Plaintiff’s written bid as applicable.

Attorneys are responsible for preparing all Sheriff’s Deeds, Clerk Returns and Sales Disclosure Forms for all sales including third party purchases.

New rule. On October 31st, the Indiana Supreme Court entered its official Order Amending Indiana Rules of Trial Procedure that included amendments to Rule 9.2. Here is the order signed by Chief Justice Rush. Regrettably, the amendment did not incorporate our proposed limiting language or otherwise resolve the matter of whether a plaintiff must file the new affidavit of debt in mortgage foreclosure cases. For reasons spelled out in my May 11th post, a strong argument still can be made that the affidavits only need to be filed with complaints articulating an action “on account” and that a mortgage foreclosure, or any other action to enforce a promissory note, is no such action. Admittedly, however, the situation remains clouded.

Consumer debts only. One critical change the Supreme Court made from the proposed rule was to limit the pleading requirement in Section (A)(2) to consumer debts. The rule’s requirement for the new affidavit applies only “if … the claim arises from a debt that is primarily for personal, family, or household purposes…” This is a common phrase in the law that identifies consumer claims and that excludes commercial/business debts. See my 12/18/09 and 11/16/06 posts. Thus the Supreme Court’s insertion of that language definitively means that Rule 9.2(A)(2) does not apply to commercial foreclosures or to the collection of business debts.

Effective date. It will be interesting to see how lawyers and judges interpret and apply Rule 9.2(A)(2), which is brand new. Again, and meaning no disrespect whatsoever, I think the Supreme Court left the scope of that subsection open for debate. We have time to digest this further as the amendment does not take effect for over two years - until January 1, 2020.

The order makes a slight amendment to Rule 4.1(B) dealing with "copy service" and now requires a follow-up mailing of both the summons and the complaint. For more on service of process matters, including copy service, read my post “Service Of Process” Fundamentals For The Plaintiff Lender.

If you are involved in a land contract dispute or wish to obtain advice about land contracts on the front-end, please email me at John.Waller@WoodenMcLaughlin.com or call 317-639-6151. Also, don't forget to follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to my blog posts via RSS or email as noted to your left.

June 25, 2017

Last week, Greg Andrews of the Indianapolis Business Journal wrote about the ongoing judgment enforcement action pending in the U.S. District Court for the Southern District of Indiana. Click here for the latest IBJ.com article. Our firm is local counsel for the judgment creditor. Our coordinating counsel, Bressler, Amery & Ross out of Florham Park, NJ, has taken the lead with the judgment collection efforts described in the news piece.

I represent parties, including borrowers and guarantors, in commercial mortgage foreclosure disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenmclaughlin.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted to your left.

May 31, 2017

The Indianapolis Business Journal'swebsite has a report today regarding a lawsuit recently filed here in Indiana that targets a “predatory and unlawful rent-to-own scheme.” The lawsuit seeks class-action status on behalf of the alleged victims of the scheme and claims violations of "several fair housing, equal credit opportunity act, truth-in-lending and condition-of-premises laws."

Although I have not read the complaints or reviewed the "rent-to-own" contracts, the transactions in question would seem to be land contracts. Indiana law views these types of agreements as a kind of hybrid of a lease and a mortgage loan. I've written about land contracts in the following posts:

If you are involved in a land contract dispute or wish to obtain advice about land contracts on the front-end, please email me at John.Waller@WoodenMcLaughlin.com or call 317-639-6151. Also, don't forget to follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to my blog posts via RSS or email as noted to your left.

May 11, 2017

Proposed rule change. Indiana’s Committee on Rules of Practice and Procedure has before it a proposal to amend Trial Rule 9.2(A). To see the proposed change, click here. The amendment also has changes to the form affidavit of debt found in Appendix A-2 of the rules. Application of the added language appears to be limited to actions “on an account” and does not seem to relate to actions involving loans, such as breaches of promissory notes or security agreements like mortgages. Although the amendment does not expressly target mortgage foreclosure cases or the enforcement of UCC security interests, the proposed language arguably leaves the rule open to interpretation as to its scope. As such, we are respectfully recommending that the Committee clarify the proposed amendment to confirm that the new subsections (A)(1) and (2) are limited to claims “on an account” and do not apply to loans.

What is an action “on an account?” To my knowledge, and based on some very limited legal research, there is no specific Indiana statutory definition of, or statutory cause of action for, an action on an account. Black’s Law Dictionary defines “on account,” in part, as “a sale on credit.” Indiana Practice, Procedural Forms with Practice Commentary (Arthur), Chapter 9, discusses “Complaints-On An Account” and says: “an action on account is one upon which billings have been sent to the other party specifying the goods or services delivered and the amount due….” Section 9.1 identifies the following elements of such an action:

1. A description of the account and the nature of the dealings between the parties;2. The goods and services were provided to defendant at his request;3. Defendant is indebted to plaintiff for a specified sum; and 4. The account is due and unpaid.

Not a loan. An account and a loan are two different animals. Black’s Law Dictionary defines a loan, in part, as “delivery by one party to and receipt by another party of a sum of money upon agreement, express or implied, to repay it with or without interest.” Although an account and a loan both might be considered “debts,” they arise out of dissimilar transactions. With a loan, one party (a lender or a creditor) gives money to another party (a borrower or a debtor). Obvious examples of this are banks funding the purchase of a car or a house. On the other hand, an account is born out of one party (seller/vendor) giving, not money, but rather goods and/or services to the other party (buyer/vendee). A classic example of an account is a hospital bill.

Written contracts. Certainly a written contract could exist for an account, and the contract conceivably may result in some kind of lien, but ultimately the nature of an account does not involve the transfer of money but rather the provision of goods or services. But frequently there is not a written agreement - only an invoice or purchase order. In fact, there may not be any written document at all, like when I mowed lawns in high school. As such, unlike with promissory notes or mortgages, when a debt arising out of an account is sold or assigned from the original account holder to a third party, proof of the account creditor may be unclear or perhaps non-existent. This absence of documentation makes the collection of such debts susceptible to fraud, or at least to questions about who is owed the money.

The target. In our view, the new Rule 9.2(A) seems to focus on a plaintiff’s obligation to establish that it has the right to enforce the debt. We understand the amendments proposed to Rule 9.2(A) may arise, in part, out of bad actors attempting to collect debts based on an account. These debt collectors often purchase debt at a discount and specialize in trying to collect it. We further understand that some of these debt collectors may be fraudsters that either don’t actually own the debt or try to collect the debt long after the statute of limitations has run.

Protections unnecessary. While claims “on an account” arguably need the protections afforded by the new subsection to the rule, claims for breaches of loan documents do not. Indeed, protections already are in place. Article 3.1 of Indiana’s UCC dealing with Negotiable Instruments (promissory notes), Article 9.1 involving secured transactions, Ind. Code 32-29 (Mortgages), Ind. Code 32-30-10 (Foreclosure Actions), well-settled case law, and a plethora of other rules, laws, and regulations, both state and federal, at present cover questions surrounding proof of standing and the right to enforce. See, for example, my post Proving You’re The Holder Of The Note. This makes the proposed amendment unnecessary for loans and, even more, contradictory to existing law and procedure, not to mention onerous. Indeed some of the proposed requirements may not even be possible for certain assignees to meet, such as a listing of all prior owners of the loan. (The Indiana Supreme Court's opinion in the Barabas case from 2012 that surrounds MERS is instructive here.)

Solution. Without clarification that the new rule is limited to claims on an account and thus does not apply to loans, courts will be confused as to how to handle such cases, which could create more problems than the rule seeks to solve. We’ve seen one very simple yet meaningful change that could be made to the proposed amendment. The mere insertion in Subsection (2) of “and the claim is on account” after the word “if” and before the words “the plaintiff” should be sufficient to clarify that the new rule does not apply to loans. Even better, if at the end of the proposed amendment, the rule said something like “Subsection (2) does not apply to actions to enforce loans, including but not limited to promissory notes or credit agreements,” then the lending and finance communities should have no issue whatsoever with the amendment.

Call to action. The Committee invites public comment on the proposed rule amendments. Those wishing to comment should do so, in writing, not later than May 15, 2017. That's Monday. Comments may be sent by email to RulesComments@courts.in.gov or addressed to:

If you work for a lender or are an Indiana lawyer who represents creditors in commercial or consumer finance, and if you agree with our position, then we invite you to submit a comment by next Monday – even if it’s just to state briefly that you generally agree with the points outlined here. I’m planning on emailing a link to today’s post directly to the committee’s staff. If you have any questions or comments, please call me at 317-860-5375 or email me at John.Waller@WoodenMcLaughlin.com. Thanks.

In addition to focusing on commercial matters, my practice has evolved to include more consumer finance litigation in which I defend residential mortgage loan servicers and their investors (lenders) in a wide variety of foreclosure and real estate-related litigation. As such, I've expanded my blog topics to address those matters. If you need assistance with commercial or consumer finance litigation in Indiana, please call me at 317-639-6151 or email me at john.waller@woodenmclaughlin.com. Also, you can receive my posts on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page. Thanks for reading these past ten years.

October 15, 2016

Last Tuesday the 11th, the United States Court of Appeals for the District of Columbia Circuit issued its 110-page opinion in PHH v. Consumer Financial Protection Bureau. If you'd like to read the entire decision, here it is.

This is all over the news. Essentially, the Court held that the structure of the CFPB is unconstitutional. Big news. I won't post the news articles here because a separate Google search will provide you with plenty to read. But, as one example, here is what George Will, one of my favorite columnists, wrote about the result: Congress insists on making itself irrelevant.

The CFPB really has no involvement with commercial foreclosure issues. It does, however, have a great impact on residential/consumer mortgage lenders and their servicers, which our firm represents in a variety of matters here in Indiana.

June 02, 2016

Yesterday, the Indiana Supreme Court issued interim rules related to Indiana's effort to form specialty commercial courts, about which I mentioned here in June and August of last year. This program and these rules would apply to commercial foreclosures. Click here for the rules.

One of our Firm's summer associates, Jedidiah Bressman, prepared a summary of the rules. Thanks to Jedidiah for his contribution to my blog.

General Notes

There are six commercial courts handling specialized dockets of business cases. The pilot project establishes these courts for business disputes in which parties agree to have their cases resolved:

Any civil case, including any jury, non-jury case, TRO, injunction, restraining order, class action, declaratory judgment, or derivative action, shall be eligible for assignment into the CCD if the case relates to:

1. The formation, governance, dissolution, or liquidation of a business entity2. Rights, obligations, liabilities, or indemnities of owners, shareholders, etc.3. Agreements involving a business entity and an employee, member of the business entity, etc.4. Disputes between or among two or more business entities or individuals as to their business activities relating to contracts, transactions, or relationships between or among them, including without limited to:

a. Any transactions governed by the UCC, except for Consumer claims against business entities or insurers of business entities and Consumer Debts.b. Cases relating or arising under antitrust laws.c. Cases relating to securities or relating to or arising under securities laws.d. Commercial insurance contracts, including coverage disputes.e. Environmental claims arising from breach of contract or legal obligations or indemnities between business entities.f. Cases with a gravamen substantially similar to the previous and not otherwise disallowed by Commercial Court Rule 3.g. Subject to the acceptance of jurisdiction over the matter by the Commercial Court Judge, cases otherwise falling within the general intended purpose of the Commercial Court Docket wherein the parties agree to submit to the Commercial Court Docket.

Cases Not Eligible For CCD

1. Personal Injury;2. Consumer Claims;3. Matters involving only wages or hours, occupational health or safety, workers’ comp, or unemployment;4. Any environmental claims not already established;5. Eminent domain;6. Any employment law cases not already established;7. Discrimination cases based on federal or state constitutions;8. Administrative agency, tax, zoning, and other appeals;9. Petition Actions; strategizing; 10. Individual residential real estate disputes;11. Any matter subject to the domestic relations, juvenile, or probate division of a court;12. Any matter subject to the exclusive jurisdiction of a city court, a town court, or the small claims division of a court;13. Any matter required by law to be heard in some other court or division of a court;14. Any criminal matter, other than criminal contempt in connection with a matter pending on the Commercial Court Docket;15. Consumer debts.

Steps To Get Into The CCD

1. If case is eligible and a party seeks to have the case assigned to the CCD, the attorney representing that party shall identify the case as a “CCD case” by filing with the clerk of the court a “Notice Identifying CCD Case” (“Identifying Notice”).2. If a party does not consent a “Notice of Refusal to Consent to Commercial Court Docket: (“Refusal Notice”) must be filed within 30 days after service of the Identifying Notice; or 30 days after the date the non-consenting party first appears in the case.3. If Identifying Notice is filed: (a) the clerk of court shall assign the case to the CCD, which assignment is deemed a provisional assignment; (b) if no Refusal Notice is timely filed by any party that has appeared in the case, the assignment of the case is deemed permanent; and (c) if a Refusal Notice is timely filed, the clerk shall transfer and assign the case to a non-CCD in accordance with applicable Rule.4. If new trial is granted; or after remand is granted, the steps of getting into the CCD start over again.5. The CCD judge has final say over whether a case is deemed appropriate for the CCD and can send a case back to a non-CCD in accordance with applicable rule. The judge’s determination shall not be subject to appeal.

General Notes About Getting Into CCD

1. This can be done at any time. (Of course, all parties must agree.)2. This includes if a case becomes eligible for the CCD after a cross-claim, etc.3. The Commercial Court Rules are limited to cases filed after June 1, 2016. Cases already pending cannot be transferred.4. Rule 4(C)(2) is the same as used in Trial Rule 3.1(B).

April 22, 2016

There is a park that is known4 the face it attractsColorful people whose hairOn 1 side is swept backThe smile on their facesIt speaks of profound inner peaceAsk where they're goingThey'll tell U nowhereThey've taken a lifetime leaseOn Paisley Park

The girl on the seesaw is laughing4 love is the colorThis place imparts (Paisley Park)Admission is easy, just say UBelieve and come 2 thisPlace in your heartPaisley Park is in your heart

There is a woman who sitsAll alone by the pierHer husband was naughtyAnd caused his wife so many tearsHe died without knowing forgivenessAnd now she is sad, so sadMaybe she'll come 2 the parkAnd forgive himAnd life won't be so badIn Paisley Park

The girl on the seesaw is laughing4 love is the colorThis place imparts (Paisley Park)Admission is easy, just say UBelieve and come 2 thisPlace in your heartPaisley Park is in your heart

See the man cry as the cityCondemns where he livesMemories die but taxesHe'll still have 2 give(who) Whoever said that elephantsWere stronger than mules?Come 2 the parkAnd play with usThere aren't any rulesIn Paisley Park

The girl on the seesaw is laughing4 love is the colorThis place imparts (Paisley Park)Admission is easy, just say UBelieve and come 2 thisPlace in your heartPaisley Park is in your heart

The girl on the seesaw is laughing4 love is the colorThis place imparts (Paisley Park)Admission is easy, just say UBelieve and come 2 thisPlace in your heartPaisley Park is in your heart

January 17, 2016

The Indianapolis Business Journalhas a good report this week with respect to what's cooking in the local lending world. Here is a link to the piece: Hoosier banks put bad-loan woes in rearview mirror. Jared Council's article has some insightful quotes from a handful of Indiana's bank executives and analysts. In short, unsurprisingly commercial foreclosures are way down, but growth appears to be slower than expected.

The federal court system has had e-filing for years through Pacer (Public Access to Court Electronic Records), which “allows users to obtain case and docket information online from federal appellate, district, and bankruptcy courts….” Indiana’s system presumably will have the same mission, except that Pacer charges a minimal fee for access to certain court documents. Indiana’s service will be free.

E-filing is great for lawyers, their staffs and, as a result, their clients, because pleadings and other court papers can be filed over the internet instead of delivering paper to the courthouse. An added benefit is that these court filings can be accessed by anyone at any time. Stephen Creason, chief counsel of the state Attorney General office’s appeals division, told The Indiana Lawyer:

Essentially the clerk's office doors are going to be open electronically, on the Internet, 24-7, 365 days a year, at no cost…. So, the public can find out what the business of the courts is and what is going on in the court system.

As 2015 comes to a close, I’d like to wish you a Happy New Year. Thanks for checking in this year.

December 10, 2015

The Indianapolis Star recently ran a series entitled "Blight Inc." that tackled the issue of "how our government helps investors profit from neighborhood decay." The series has eight separate in-depth articles written by reporter Brian Eason. All of the work can be accessed via IndyStar.com at this link: Bright Inc. Mr. Eason and I’m sure others at the Star clearly worked hard in putting together a thorough investigation and analysis of Indiana’s real estate tax enforcement system.

Because I sometimes write about tax sales (see Category to right), I thought my readers and other surfers might want to know about the series. Lots to read. It’s impossible for me to comment in any detail on such a big project as Blight Inc. other than to point out that the series, in part, highlights a county’s struggle with, on the one hand, the need to collect delinquent real estate taxes and, on the other hand, the need to rehabilitate (or raze) abandoned properties. Here is a quote from the last article in the series that summarizes the problem, according to the Star:

The Star’s investigation into abandoned housing revealed how Indiana’s tax sale system is undermining both public and private efforts to rehab distressed neighborhoods. The Star found that county treasurers across the state repeatedly sold run-down houses to investors who did not want them, and later let them go back to tax sale. Meanwhile, the system allowed a handful of large investors to amass hundreds of houses from county sales. But in the absence of any requirements that they rehab the homes, many have fallen further into disrepair, costing the city millions of dollars in code enforcement, maintenance and emergency runs.

As an aside, interestingly, the Star quoted state Sen. Jim Merritt, R-Indianapolis who suggested blight could curtailed by making Indiana a non-judicial foreclosure state:

Merritt pointed to another culprit [of blight] — the length of the state’s mortgage foreclosure process, which he thinks contributed to the huge number of vacant properties following the housing crisis. He wants to move Indiana away from its judicial foreclosure process toward a [faster] non-judicial system, as is used in both California and Texas.

Due in part to the Star’s work, Indiana lawmakers will be looking at reforming Indiana’s tax sale system. The nature of the reforms is not altogether clear or settled. If and to the extent changes to Indiana’s tax sale or foreclosure systems are made, particularly if they effect commercial real estate, I’ll write about them here.

What remains unclear to me is how a county can collect delinquent taxes without publicly auctioning off the subject real estate to the highest bidder, whoever that may be. While I agree that abandoned housing and blight (even commercial property blight) are serious problems, I’m not fully convinced that the tax sale system is to blame.

July 20, 2015

In the end, the Indiana General Assembly's 2015 session did not produce any meaningful foreclosure-related legislation or any amendments to prior foreclosure-related state laws. As I wrote this Spring, there were some fireworks pertaining to SB 415, but the only thing that really arose out of the signed SB 415 was the creation of a state preemption of any local ordinance that involves foreclosures. Quiet year.

June 03, 2015

Both the Indianapolis Star and the Indiana Lawyer have news about Indiana’s ongoing discussions to establish courts to handle commercial cases only, including presumably commercial foreclosures. For details, click on these links:

This is a great idea, and I hope it comes to fruition. As lawyers become more specialized, so too should judges if possible. The new courts should help lenders, borrowers and guarantors alike. Time and expense will be saved. Hopefully by 2016 this will be a reality.

The article mentions my blog and has a couple quotes from yours truly. As I told Ms. Odenhahl during the interview, my only regret is not having a sexy name, such as The Forecloser or Lord of the Liens. Too late now.

April 16, 2015

The Indianapolis Star is reporting that local developer Lee Alig is "facing 20 felonies after prosecutors say he received thousands of dollars of funds from victims through promissory notes he was unable to pay." The article goes on to state that the Marion County Prosecutor is alleging Alig "took personal profits from eight promissory notes, totaling $340,000 ... [and] had neither the ability to repay those funds nor ownership of the collateral offered as security for those notes." Although there are few details in the story, the situation is remarkable and potentially frightening for borrowers/guarantors because it seemingly stands in contrast to Indiana civil/constitutional law holding that Jail Time Is Not An Available Remedy In Collection Actions In Indiana.

April 10, 2015

As reported this week by IndyStar.com, the residential foreclosure case settlement conference mandates about which I discussed on 3/19/15 and 3/9/15 will remain in place. SB 415's amendment that was intended to do away with state requirements, in light of federal consumer protections already in place, has been killed. Status quo.

[the amendment] was supported by the Indiana Mortgage Bankers Association, a trade group that represents hundreds of mortgage lenders around the state. They say mortgage lenders should not have to deal with two different systems. Going through two processes is expensive, time consuming and unnecessary, the association said.

“The federal system was drafted by the Consumer Financial Protection Bureau and is much more comprehensive in its requirements than the current state requirements,” Tom Dinwiddie, a lawyer for the mortgage bankers group, wrote in an email.

When this year's session ends, I will advise as to how this turned out.

Provides that a county, city, or town fiscal body may adopt an ordinance to establish a deduction period for rehabilitated property that has also been determined to be abandoned or vacant. Specifies that there must be delinquent property taxes or special assessments on real property before it may be sold by the county treasurer as abandoned or vacant property. Provides that an order of a local building standards hearing authority that real property is abandoned or vacant and nonpayment of the associated penalty permits the executive of the county, city, or town to vacant and abandoned housing and mortgage servicing. Specifies that there must be delinquent property taxes or special assessments on real property before it may be sold by the county treasurer as abandoned or vacant property. Specifies that the county treasurer and not the county auditor is to auction abandoned or vacant property. Eliminates the concept of redemption after sale regarding abandoned or vacant property to be sold by the county treasurer. Provides that the county, city, or town executive that certifies a property as abandoned or vacant has an option to take ownership of the property if the minimum bid is not received. Separates out several provisions concerning abandoned and vacant property sales from delinquent tax sales and makes related changes. Provides that a hearing authority may use the same standards that are used by a court in finding that real property is abandoned or vacant for purposes of selling the real property at an abandoned and vacant property sale. Permits a county, city, or town executive to use the courts instead of a hearing authority for the determination that a property is abandoned or vacant. Prohibits owners of property that was found to be vacant or abandoned in any county, from buying property at a tax sale, and requires the attorney general to include these owners on the tax sale blight registry. Provides for the following: (1) Removal of properties not suitable for tax sale from the tax sale list. (2) A redemption period of 120 days from the date of the tax sale from which the property was removed. (3) Notice of removal of property from the tax sale list. Eliminates a provision that permitted the county auditor to be the only signer of a sales disclosure form in the case of a tax sale because the sale disclosure form is not required for a tax sale. Adds a requirement to issue a judgment when property is found to be abandoned. Adds conditions under which a property may be determined to be abandoned. Provides that the statute concerning foreclosure prevention agreements does not apply to a mortgage servicer subject to certain federal regulations adopted under the federal Real Estate Settlement Procedures Act.

I wrote about changes to the vacant and abandoned housing laws back in 2010.

Evidently one of the potential controversies surrounding the 2015 bill is an amendment in committee with language that addresses the duplicative requirements in the Dodd-Frank Act and Indiana Code as it pertains to settlement conferences and loss mitigation. Some say the amendment may do away with all or portions of the rules enacted in 2009 related to mandatory settlement conferences for residential foreclosures. (I touched on that here.) The Journal Gazette in Fort Wayne wrote about the issue over the weekend in a pro-borrower story: link. The bill has been referred to the House Local Government Committee.

February 18, 2015

Last Sunday's Indianapolis Star included a piece by John Russell addressing whether we may see an uptick in commercial loan defaults and corresponding foreclosures: link. The story identifies a handful of local foreclosures and includes a quote from yours truly. From what I understand, banks and financial institutions are returning to commercial real estate lending. My sense is that there will be a wave of refinancing and not a wave of commercial foreclosures. As suggested by the Star's article, however, this is subject to debate. Thanks to Mr. Russell for seeking my input.

The outcome of the Hawthorns matter, which centered around a splendid golf club on the northeast side of Indy, was that the lender/mortgagee (actually, a private investor group) acquired title to the Hawthorns free and clear of all liens. The case is illustrative of how a real estate developer (in this instance, a golf course-based business) can become the owner of a project by first purchasing a distressed, secured loan and then foreclosing on that loan.

If you are interested in pursuing a transaction like this, please give me a call. Our firm has experience with these deals, which encompass real estate, litigation and bankruptcy law.

June 26, 2014

The "North of 96" blog published by IBJ.com'sAndrea Davis has a post relating to a commercial foreclosure on an event venue in Fishers: story. Evidently judgment has been entered, and a sheriff's sale is scheduled for July. What's interesting to me is the owner/borrower claims that there has been some mistake on "technical" grounds and that there was no default on the loan. The case, filed in November, is about three weeks from a sheriff's sale. I'm curious as to what alleged "technical problem" exists and how the case progressed this far despite it. Normally "technical problems" would be raised before the entry of judgment, unless perhaps this is an instance where a default judgment should be set aside. If Ms. Davis continues to follow the case on her blog, I will update this post.

June 10, 2014

Greg Andrews of the Indianapolis Business Journal has a behind-the-scenes piece about a "a duel for one of the biggest prizes in Indianapolis golf—ownership of the Hawthorns Golf & Country Club." Here is a link to the article: Lender to bankrupt country club puts on suitor’s cap. This appears to be a so-called "loan-to-own" matter in which a developer may have purchased the commercial mortgage loan from the original lender for the primary purpose of foreclosing and ultimately owning the subject real estate, in this case a country club.

February 21, 2014

The Indianapolis Star and the Indianapolis Business Journal recently reported on the March 6th sheriff's sale of Tim Durham's $5.5MM, 10,700 sq. ft. mansion in Hamilton County. The mortgaged debt appears to be about $4.5MM. Mr. Durham is serving a 50-year prison sentence for a $200MM Ponzi scheme.

Here is a link to the Star's article: Durham. The IBJ article is premium content, so if you're a subscriber go to IBJ.com for the February 15th piece written by Greg Andrews.

If you're interested in bidding at the sale, here is a link to the relevant Hamilton County Sheriff's website, and here is a link to the listing, which is on page 86 of 111.

October 14, 2013

Last week, Indiana lawyers received the following notice from Laura A. Briggs, Clerk of the United States District Court for the Southern District of Indiana:

COURT OPERATIONS AFTER "SHUTDOWN"

The Federal Judiciary is likely to exhaust all available sources of funding some time during the week of October 14, 2013, unless a continuing resolution or other source of funding is passed by Congress and signed by the President before then.

Once all funds have been exhausted, the Judiciary enters a "shutdown" phase. However, even in this phase, the normal processing of all criminal and civil cases will continue. New cases can be filed. Criminal and civil hearings and conferences will take place. Jury and bench trials will proceed. CM/ECF will be operational, and Orders will be processed. The Courthouses of the Southern District will be open.

Customers should experience minimal disruption - unless they are involved in a civil case in which the United States Attorney's office has appeared. Some of these cases are stayed pursuant to the Court's Order of October 7, 2013 (available on our website: www.insd.uscourts.gov). The civil case docket should be reviewed to determine if the stay is in effect in a particular case. Questions about the presence or absence of a stay in a particular case should be directed to the Clerk's Office.

Any further information on this topic will be posted on the Court's website.

May 25, 2013

Distressed loans secured by commercial property often involve delinquent sewer fee liens, which I discussed in my 10/24/08 post. These liens typically go hand-in-hand with delinquent real estate taxes. Workout professionals should remain mindful of this possibility as they analyze their collateral and make decisions concerning the enforcement of the loan. Questions I’m frequently asked are whether the lender should pay the real sewer fees liens and, if so, when.

Prior procedure. Indiana law historically required the plaintiff/lender, assuming it was the winning bidder at the sheriff’s sale, to pay any delinquent sewer fees, along with real estate taxes, immediately after the sale. In the case of a cash bidder (third party), sewer liens would be paid off the top or, in other words, the county treasurer got the first cut of the sale proceeds.

2011. We then noticed that some county sheriff’s offices started to require the plaintiff/lender to pay delinquent real estate taxes and sewer fee liens before the sale. In 2011, prepayment of delinquent real estate taxes became a statutory requirement by virtue of Ind. Code § 32-29-7-8.5 “Requirements for Payment of Property Taxes and Real Estate Costs Before Sheriff’s Sale.” See my 1/21/11 post for more.

2013. In this year’s session, Indiana’s General Assembly enacted HB 1132, which added delinquent sewer fee liens to the mix. HB 1132 amends Ind. Code Sec. 32-29-7-8.5 and will be effective July 1, 2013. The statute will now state, in pertinent part, that “the party that filed the praecipe for the sheriff’s sale shall pay . . . all delinquent property taxes, sewer liens described in IC 36-9-23-32, special assessments, penalties, and interest that are due and owing on the property on the date of the sheriff’s sale.” A failure to pay will result in the cancellation of the sale.

Policing the issue? Beginning in January 2011 in Marion County (Indianapolis), the Treasurer, in conjunction with the Sheriff, required that a Tax Clearance Form be (a) completed by the party requesting the sale, (b) stamped by the Treasurer’s Office and (c) then submitted to the Sheriff’s Office with the written bid. I’ve seen other counties utilizing forms like this. I suspect any such forms will be amended to include a statement about sewer fee liens. Please remember to confer with the particular county sheriff’s office in advance because rules and procedures may vary by county.

Build into judgment. Since I.C. § 32-29-7-8.5 will require sewer fee liens to be satisfied before the sale, the amount of any such lien that either has been or will be paid by the lender should be an item of damages identified in the judgment. Before the statutory change, borrowers theoretically could attack that damage figure as being speculative. Some borrowers claimed that, because the lender had not actually incurred the loss at the time of the entry of judgment, courts could not award the damages. Hypothetically, the borrower might later pay the fees or a third-party buyer might pay them Now, because the foreclosing lender is compelled to advance payment of the sewer fee liens, courts in turn should be compelled to include such losses in the calculation of damages.

Plan ahead. Lenders and their foreclosure counsel should make it their routine practice, when calculating the debt, to verify with the county treasurer the status of both the real estate taxes and sewer fee liens. Indeed a sewer fee lien should be identified in a title commitment. As a practical matter, these liens will be a component of the amount owed by the borrower (and guarantor).

May 12, 2013

Last year, the Indiana General Assembly amended Ind. Code 32-29-8-3. For more, please read my 3-29-12 post. But the Court of Appeals' 2011 opinion in CitiMortgage v. Barabas and 2012 statutory amendment left open the question of whether Indiana had a limited post-sheriff's sale right of redemption.

When the Indiana Supreme Court issued its 2012 opinion on transfer in the CitiMortgage v. Barabas case, the Justices answered some important questions about Indiana mortgage law, including the role of MERS, but as I wrote on 10-12-12 the post-sale redemption question was not one of them. Some confusion remained. (Note: federal tax liens give the IRS a post-sale right of redemption, which is the only such right of which I'm aware in Indiana.)

In this year's session, the General Assembly in Senate Bill 279 finally axed the statutory language that purported to grant a one-year post-sale right of redemption to certain parties. Ind. Code 32-29-8-3 has been amended, effective July 1, 2013, as follows:

Sec. 3. A person who: (1) purchases a mortgaged premises or any part of a mortgaged premises under the court's judgment or decree at a judicial sale or who claims title to the mortgaged premises under the judgment or decree; and (2) buys the mortgaged premises or any part of the mortgaged premises without actual notice of(A) an assignment that is not of record; or(B) the transfer of a note, the holder of which is not a party to the action;holds the premises free and discharged of the lien. However, any assignee or transferee may redeem the premises, like any other creditor, during the period of one (1) year after the sale or during another period ordered by the court in an action brought under section 4 of this chapter, but not exceeding ninety (90) days after the date of the court's decree in the action.

January 09, 2013

Today's Wall Street Journal contains an interesting opinion that "housing prices stabilize when lenders can enforce contracts" (in other words, foreclose). Click here for the piece. Although the article focuses upon residential real estate, its theme and theory apply with equal vigor to commercial properties. As you read the opinion, you should remain mindful that Indiana is one of the country's 23 judicial foreclosure states. Click here for a prior post about what that means. The nature of Indiana foreclosure law rests, in part, upon the notion that Indiana follows the "lien theory" of mortgages.

December 08, 2012

With the Thanksgiving holiday, the press of my day job and a trip to Georgia last week for my dad's 70th birthday, I have been unable to post anything of late. I apologize.

After over 300 posts and 6+ years of purely business-related features, I thought I'd take a moment to post something personal and recognize my dad, pictured below on the left, who turned 70 in October. Dad is a retired attorney from Washington, Indiana, where I grew up, and is very dear to me. My little brother Matt, pictured on the right - with me in between - had the privilege of playing Augusta National this past Wednesday. Matt, who works in the golf industry in Atlanta, was able to get us on the course through his contact, Danny Yates, pictured in the center.

For those who may be a fans of The Masters, you'll recognize #12 green in the background, as we stand on Hogan Bridge over Rae's Creek. My dad, a life-long average golfer at best, birdied this hole. Needless to say, it was a special day. Kudos to Matt and Mr. Yates for making this dream come true.

Happy holidays, and thanks to all who read my blog. Back to work next week.....

April 26, 2012

I recently worked with reporter Jenny Montgomery in connection with her piece in the April 27th edition of the Indiana Lawyer. Here is a link to the story, which quotes me: 2 Cases Prompt New Real Estate Law. Ms. Montgomery tackled complicated topics in a relatively short space, and in my view she helped make the "big picture" understandable.

As a reminder, for a more in-depth assessment of the statutory amendments and how they might affect secured lenders and other parties involved in the foreclosure of commercial mortgage loans, please click on one or more of my four recent posts on the issues: Abandonment, Redemption, Strict Foreclosure, Citimortgage Transfer.

April 12, 2012

Senate Bill 298, which amends Ind. Code § 32-29-8, creates a new section: 4. The legislation responds to the Indiana Supreme Court’s opinion in Citizens State Bank of New Castle v. Countrywide Home Loans, Inc. and the Court of Appeals’ holding in Deutche Bank v. Mark Dill Plumbing. The amendments hit on technical subjects related to Indiana’s strict foreclosure remedy and doctrine of merger. The practical effect is a solution to problems associated with junior liens missed during the foreclosure process.

Citizens and Deutche revised. These are dense topics tough to cover in a single post. For background, please read my 10-07-11 and 07-20-09 posts on Citizens and Deutche, respectively. In Citizens, the Supreme Court applied the doctrine of merger and permitted the omitted junior lien holder to leap frog into a senior priority position. In Deutche, the Court of Appeals concluded there was no merger (leap frog) and discussed remedies for the post-sale title defect. With the new Section 4, it appears that the Citizens merger (and leap frog) would not have occurred. The result in Deutche also would have been different because courts now have a statutory road map for dealing with the aftermath of a foreclosure suit that improperly excluded a junior lien holder.

Section 4. The new statute appears to be effective immediately and can be found at this link: Section 4. Here are the highlights as I read them:

A. Applicable parties: Section 4 applies to two groups, defined as “interested persons” and “omitted parties.” An “interested person,” which I’ll label a “Buyer,” basically includes (1) plaintiff mortgagees, (2) purchasers at a sheriff’s sale or (3) assignees of (1) or (2). An “omitted party,” which I’ll call a “Junior Lienor,” essentially is a junior lien holder improperly omitted from foreclosure proceedings .

B. New cause of action: “At any time” after the entry of a foreclosure judgment, either the Buyer or the Junior Lienor can file an action, the purposes of which are (1) to determine the extent of a Junior Lienor’s lien and (2) to terminate such lien on the mortgaged property sold at a sheriff’s sale. Generally, the action – a lawsuit – is a statutory strict foreclosure case, though the statute does not use that terminology.

C. Junior Lienor’s right to payment: If a Junior Lienor had a right to receive any proceeds from the sheriff’s sale, its lien cannot be terminated until the Junior Lienor is paid for such losses. (The statute does not spell out who must pay. For now, I’ll simply note that sheriff’s sale surpluses are incredibly rare due to the absence of equity in most foreclosed-upon real estate.)

D. Junior Lienor’s right to purchase: There are three key factors a court must consider when determining a Junior Lienor’s right of redemption in the strict foreclosure action. (The “redemption” language used in Section 4 refers to a Junior Lienor’s right to pay off the Buyer and thus acquire title to the property.) Here are the factors: (1) whether the Junior Lienor had actual knowledge of the foreclosure proceedings and an opportunity to intervene, (2) the value of any post-sale improvements made by the Buyer to the property and (3) the amount of the post-sale taxes and interest paid by the Buyer. Factor (1) seems to provide a basis for the right of redemption to be terminated outright, and factors (2) and (3) help make the Buyer whole for any ownership-related carrying costs incurred.

E. Junior lien terminated: If the court concludes the Junior Lienor was entitled to redeem, then the amount the Junior Lienor must pay for redemption cannot be less than the sheriff’s sale price plus statutory interest (8%). (The court also must consider the factors in (D) when determining the amount the Junior Lienor must pay.) The Junior Lienor has ninety days to submit the payoff. If the Junior Lienor does not submit such payment, then the Junior Lienor’s rights will be terminated without compensation, just as they would have been in the foreclosure process.

F. Anti-merger statute: Section 4 specifically provides that there is no merger of the senior lien and title to the property until a Junior Lienor’s interest is terminated. This new legislation appears to resolve many uncertainties surrounding Indiana’s common law doctrine of merger. Thus the Buyer, which presumes that it’s acquiring title free and clear, has protections it did not previously have.

I’m planning a follow-up post to identify some holes in SB 298. For today, it’s important for secured lenders and other lien holders to know that Indiana now has a statutory method to clear up title when a buyer learns that a junior lien survived a sheriff’s sale. While Section 4 is not perfect, I agree with my partner Tom Dinwiddie that this was a necessary and fair bill that protects both buyers and junior lien holders.

March 29, 2012

The second noteworthy issue arising out of the General Assembly’s 2012 session surrounds Senate Bill 298, which amends Indiana Code § 32-29-8 “Parties to Foreclosure Suit; Redemption,” including Section 3. This post revisits CitiMortgage v. Barabas, including the mystery that is I.C. § 32-29-8-3, about which I wrote last year: Post 1, Post 2 and Post 3. Unfortunately, even though the legislature amended Section 3, the 2012 session didn’t directly tackle Section 3’s obscure redemption provision. Questions arising out of CitiMorgage linger.

New Section 3. Here is Section 3 of I.C. § 32-29-8, as amended by the italicized language, effective July 1, 2012:

A person who:

(1) purchases a mortgaged premises or any part of a mortgaged premises under the court’s judgment or decree at a judicial sale or who claims title to the mortgaged premises under the judgment or decree; and

(2) buys the mortgaged premises or any part of the mortgaged premises without actual notice of:(A) an assignment that is not of record; or(B) the transfer of a note, the holder of which is not a party to the action;

holds the premises free and discharged of the lien. However, any assignee or transferee may redeem the premises, like any other creditor, during the period of one (1) year after the saleor during another period ordered by the court in an action brought under section 4 of this chapter, but not exceeding ninety (90) days after the date of the court’s decree in the action.

Redemption/strict foreclosure tweak.The underlined portion above is the source of some uncertainty and was not modified by the General Assembly this year. The critical purpose of the amendment to I.C. § 32-29-8 surrounds section 4 and what amounts to a brand new statutory strict foreclosure action. I.C. § 32-29-7-13 has been amended to state “there may not be a redemption from the foreclosure of a mortgage executed after June 30, 1931, on real estate except as provided in this chapter and in IC 32-29-8.” The new “and in IC 32-29-8” language refers to Section 4, which is momentous legislation related to Indiana mortgage foreclosure law that I will discuss in my next post.

Status. One interpretation of Section 3 and CitiMortgage, which dealt with a rare set of facts, is that a buyer at a sheriff’s sale could acquire the property, only to learn within a year after the sale that a senior mortgagee, by virtue of a previously-unrecorded assignment, could surface and assert an interest in the property. I do not believe that the 2012 statutory amendments directly impact, or help clarify, the CitiMortgage holding. Even with the new Section 4, I.C. § 32-29-8, Section 3, needs a little more attention from the General Assembly. I’m afraid Section 3 unwittingly opens the door to litigation concerning post-sale rights of redemption in Indiana. (Note: On 4-10-12, the Supreme Court granted transfer in CitiMortgage.)

Three-month waiting period. Indiana has a post-complaint, three-month waiting period before sheriff’s sales can be requested. My July 30, 2010 post noted the exception to the three-month rule, which exception did not at the time apply to commercial properties – only residential.

The new I.C. § 32-29-7-3(a)(2). The amended statute, which becomes effective July 1, 2012, revises the exception to the three-month rule to read: “If the Court finds under I.C. 32-30-10.6 that the mortgaged real estate has been abandoned, a judgment or decree of sale may be executed on the date the judgment of foreclosure or decree of sale is entered, regardless of the date the mortgage is executed.” The new statute deletes the “residential” qualification and thus applies to commercial foreclosures now too. Moreover, the statute incorporates a brand new statute – I.C. § 32-30-10.6 – that creates a test and a procedure to determine whether the real estate has been abandoned.

I.C. § 32-30-10.6. This brand new statute is entitled “Determination of Abandonment for Property Subject to a Mortgage Foreclosure Action” and is quite lengthy. If foreclosing lenders or their counsel believe the subject real estate may be abandoned, then this new statute should be studied and followed, assuming there is interest in rushing to a sheriff’s sale. My partner Tom Dinwiddie, who helped draft the legislation, pointed out to me that, in practice, a Section 10.6 motion should be filed with the Complaint or, at the latest, with the Motion for Default Judgment in order to take advantage of the exception to the three-month rule.

Commercial application. As noted by one of my 2006 posts, Indiana’s judicial foreclosure process takes time. In my experience, the three-month waiting period rarely comes into play in commercial actions. Nevertheless, in instances where the commercial property is abandoned, this new legislation establishes a process that, in theory, permits lenders to get the property to a sheriff’s sale faster.

I find that when I talk to a lot of people about different issues, many of them will reflexively indicate that either government or greedy business is the problem, depending on their ideological perspective. Other times people will trumpet the virtues of public/private partnerships. The collection of real estate taxes by auctioning off liens and tax deeds appears to have the potential of being a toxic mixture of the worst aspects of government and business. Clearly it helps local governments keep overhead down, which is a good thing, but at least in Indiana, it appears that there needs to be some greater protection for hapless homeowners.

Jewell is an interesting and educational case for mortgagees, mortgagors, tax sale purchasers and real estate lawyers. For more background on the law and related issues regarding Indiana tax sales, and how they affect secured lenders, please review my two posts on the subject from last November.

July 25, 2011

USA Today has a telling piece regarding short sales on line: Short sales, long waits: Buyers and sellers find process frustrating. The article focuses on the residential side, but does provide some insight into the process as it might apply to commercial transactions. The main difference I see is the role that mortgage insurance evidently plays in a consumer short sale.

July 10, 2011

A July 7th article from Bloomberg Businessweek concluded that the Indiana Toll Road, which had been "held up as an example of public-private partnerships, shows no signs of breaking even for its conglomerate." LINK. Given the political backrop, it's hard to imagine that it would ever come to this - but the article suggests the possibility of a foreclosure action involving the project:

The private investors haven’t made out so well. Had the road been profitable, they stood to make millions per year over the life of the 75-year project. As it is, they have not been able to get past the debt they incurred winning the bid. They have met their annual debt payments only by borrowing money and may default before loans mature in 2015, according to disclosure documents from Macquarie Atlas Roads, one of the investors. The project’s 2010 prospectus said that revenue from the highway is “expected to remain insufficient to cover debt service obligations over the medium term.” The document cautions that “any default under the loan documents may lead to lender actions which may include foreclosure of the project assets or bankruptcy.”

The "project assets" upon which the lenders would foreclose are not detailed in the article. From what little I know about the deal, the lenders would not be able to repossess (own, via a sheriff's sale) the interstate itself because the State of Indiana maintains ownership of the roadway. The investors' (borrowers') rights to the Toll Road arise out of a long-term lease arrangement.

If and when additional details unfold about the project's problems and/or the lenders' remedies upon default, I'll post the information here. It could be a very interesting and unique case, particularly from a secured lender's perspective, if the matter were ever litigated.

Meanwhile, I thought I'd provide links to two pretty good websites that regularly supply foreclosure news. Most foreclosure news relates directly to residential issues, but both of these sites deal at times (and in places) with commercial matters:

The Topix site is what regularly feeds the news on the right side of my home page.

IBJ.com's Cory Schouten writes real estate blog Property Lines, which is a cool little site that provides local news and insight into the Indianapolis real estate market, with an emphasis on commercial matters. Shouten's blog also is permanently linked along the right side of my home page.

Thanks for reading, and please never hesitate to email me or post comments about Indiana commercial foreclosure issues. I love this stuff.